Paragon returns to new lending

Sarah Davidson

September 28, 2010

The lender pulled out of new originations in February 2008 when funding conditions became impossible and has since managed its existing back book.

However, following the Macquarie deal to provide a revolving warehouse funding facility, Paragon now plans to originate £200 million worth of buy-to-let loans through a panel of buy-to-let specialist brokers and then securitise, freeing up the warehouse facility for new origination.

The lender is confident that this “sustainable” funding set up will return it to its “market-leading position” lending to professional landlords. As well as using the intermediary channel, Paragon has indicated it will accept direct business.

Products include a 2-year fixed rate at 5.3% with a 2% fee up to 65% LTV and a 2-year fixed rate at 5.5% with a 2.2% fee up to 75% LTV. It also has four tracker deals available; a 2-year 4.3% (Libor + 3.5%) with a 2% fee up to 65% LTV; a 2-year 4.8% (Libor + 4%) tracker with a 2.25% fee up to 75% LTV; a 5-year 4.55% (Libor + 3.75%) tracker deal with a 2% fee up to 65% LTV and a 5-year 5.05% (Libor + 4.25%) deal with a 2.25% up to 75% LTV.

Paragon says it will offer professional landlords facilities that are not widely available elsewhere, such as limited companies, multi-unit blocks and Houses of Multiple Occupation.

The lender said that it would have a “prudent and risk-averse approach to new lending, placing greater value on long-term customer relationships, credit quality and profitable products than simply market share”.

John Heron, Paragon Group’s director of mortgages, said: “We are really excited about our return to new lending. The market is still fairly subdued and the road back to a ‘normal’ market is going to be a long one, but we are back in the race and we will do our level best to make sure that we expand the choices available in buy-to-let finance for landlords and intermediaries.”

Paragon underwrites each application on an individual basis, rather than relying on computer scoring, employs its own team of surveyors to assess the property thoroughly and designs its products to appeal to good quality, experienced landlords. This strategy has proved successful for Paragon and is a driving factor in the better than market average credit performance of the group’s assets.

The number of accounts more than three months in arrears across Paragon’s portfolio of buy-to-let assets has continued to fall and is currently just 0.86% of the book. This is below buy-to-let market peers and also the wider mortgage market.

Heron added: “Access to buy-to-let mortgage finance is still a major issue for residential property investors, and particularly professional investors who may exceed lenders’ aggregate lending limits or who find that their more complex or unique finance requirements cannot be met by the standard buy-to-let lenders.

“Competition is vital for a healthy and vibrant buy-to-let market, and we aim to provide that competition. Supply of private rented sector property is already under severe strain, which is leading to rental inflation. It will be professional landlords that stimulate the growth of the sector, and we want to be there to help them achieve this.”

Competition in the buy-to-let mortgage market has reduced dramatically since the start of the credit crunch and the sector has been dominated by The Mortgage Works and BM Solutions, accounting for up to 80% of new business written.

The number of available buy-to-let products has fallen from over 3,600 in July 2007 to approximately 280 today. Many of these products are focused towards the novice or small-scale landlord and fail to cater for professional landlords’ more complex financial needs.

Council of Mortgage Lenders figures show that buy-to-let lending hit its lowest point since 2001 by both value and volume last year, and this reduction in lending is starting to feed through to supply constraints in private rented sector property.

The Association of Residential Letting Agents revealed in July that 70% of its members reported more tenants than available properties. According to The Royal Institution of Chartered Surveyors’ UK Lettings Survey, this supply constraint is starting to result in rental inflation.

Paragon also expects operating profits for the year to 30 September 2010 to be above current market consensus forecasts, and around the upper end of the analysts’ current expectations, which range from £40.5 million to £65.0 million.

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